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### Viewing cable 07MANAGUA1865, PROPOSED U.S. TOBACCO TAX WOULD JEOPARDIZE JOBS

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07MANAGUA1865 | 2007-08-08 16:17 | 2011-06-21 08:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Managua

`

    VZCZCXYZ0007
    PP RUEHWEB

    DE RUEHMU #1865/01 2201617
    ZNR UUUUU ZZH
    P 081617Z AUG 07
    FM AMEMBASSY MANAGUA
    TO RUEHC/SECSTATE WASHDC PRIORITY 0952
    INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
    RUEHDG/AMEMBASSY SANTO DOMINGO 0538
    RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

` `

    UNCLAS MANAGUA 001865

    SIPDIS

    SENSITIVE
    SIPDIS

    USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN
    3134/ITA/USFCS/OIO/WH/MKESHISHIAN/BARTHUR

    E.O. 12958: N/A
    TAGS: ETRD ECON PREL NU
    SUBJECT: PROPOSED U.S. TOBACCO TAX WOULD JEOPARDIZE JOBS
    IN NICARAGUAN CIGAR SECTOR

    REF: STATE 6604

    Summary
    -------

    ¶1. (SBU) In an August 2 meeting with he Ambassador, representatives
    of the Nicaraguan cigar industry voiced concern that a proposal to
    increase cigar taxes in the United States will snuff out growth in
    their sector.  They warned that the tax would jeopardize the jobs of
    15,000 direct employees and another 15,000 indirect employees.
    Industry representatives are seeking support on this issue from the
    Nicaraguan government, claiming the tax may be inconsistent with
    U.S. CAFTA-DR commitments.  They also plan to contact members of the
    U.S. Congress directly on the issue.  If passed, the tax may provide
    President Ortega with an example of "U.S. duplicity" in offering
    market access through CAFTA-DR only to cut it through an excise tax.
     End Summary.

    Social and Economic Impact
    --------------------------

    ¶2. (U) Representatives of the Nicaraguan Cigar Guilders Association,
    which includes several U.S. companies, met with the Ambassador on
    August 2, 2007, to discuss a bill the U.S. Congress is debating to
    fund child healthcare with an increase in excise taxes on tobacco
    products.  During the meeting, the association's membership voiced
    concern with both the Senate version, which would tax cigars at
    53.13%, with a $10 cap per cigar, and a House version, which would
    tax cigars at 44.63%, with a $1 cap.  Either version, they said,
    would cripple the cigar industry in Nicaragua.  In 2006, Nicaragua
    exported $33.8 million dollars in cigars to the United States.

    ¶3. (U) According to Alejandro Martinez Cuenca, owner of the Joya de
    Nicaragua cigar company and a noted Sandanista economist, demand for
    premium, hand-rolled cigars is elastic, so any increase in price
    produces a corresponding decrease in sales.  He also suggested that
    premium, hand-rolled cigars are a luxury item and are less likely
    than cigarettes and machine-rolled cigars to be abused in their use.

    ¶4. (U) Martinez Cuenca claimed the proposed cigar tax would
    jeopardize the jobs of 15,000 cigar workers.  He added that some
    15,000 indirect employees could also lose their jobs in the sector.
    Martinez Cuenca said that the average salary for a worker in a cigar
    manufacturing company is $160 - $200 dollars a month.  [Note: The
    minimum wage for the manufacturing sector is approximately $77 a
    month.  End Note.]  Meanwhile, Omar Ortez of Nicaraguan American
    Tobacco (NATSA) reported that 95% of the those employed by the
    Nicaraguan cigar industry are between the ages of 18 and 25 and that
    more than 60% are women.

    ¶5. (U) In most cases, said Martinez Cuenca, these employees are the
    only wage earners in a family of five, meaning that 150,000
    Nicaraguans, of a regional population of 500,000, would be affected
    by the measure in the northern departments of Esteli, Madriz, and
    Nueva Segovia where tobacco cultivation and cigar manufacturing is
    concentrated.  Absent jobs in the tobacco sector, he suggested that
    most workers would return to subsistence agriculture or other
    seasonal work that would pay much less.  Representatives of the
    association also claimed that many in the region would likely
    immigrate to the United States were they to lose their jobs in the
    tobacco sector.

    Industry Response
    -----------------

    ¶6. (U) Cigar industry representatives have met with Nicaraguan
    government officials to seek their support.  Minister of Trade,
    Industry, and Development Orlando Solorzano told the Ambassador in
    their July 26 meeting that he believes the tax would be inconsistent
    with CAFTA-DR obligations, if implemented (septel).  Martinez Cuenca
    later suggested to the Ambassador that although it might be
    difficult to show that the tax were inconsistent with CAFTA-DR, it
    would clearly violate the spirit of the agreement.  He said market
    access for cigars, which now enter duty free under CAFTA-DR, would
    become meaningless.  The Ambassador--both in his meeting with MIFIC
    Minister Solorzano and with cigar industry representative--replied
    that President Bush has already threatened to veto the bill, which
    may make a trade complaint unnecessary.

    ¶7. (U) Nonetheless, representatives of the cigar industry in
    Nicaragua suggested they would seek to communicate with members of
    the U.S. Congress to inform them of the negative economic and social
    consequences the tobacco tax increase would have in Nicaragua.  They
    said they would coordinate their efforts with cigar industry
    representatives in Honduras and the Dominican Republic.  Nestor
    Plasencia, president of the association, has already written to U.S.
    Secretary of Commerce Carlos Gutierrez on the issue.  [Note: Post
    faxed this letter to Commerce/ITA/MAC on August 3.  End Note.]

    Comment
    -------

    ¶8. (SBU) Although industry representatives emphasized the social and
    economic wellbeing of their workers in their meeting with the
    Ambassador, they are no doubt clearly also concerned the tax would
    harm their bottom line.  We have been careful to emphasize that we
    are limited by U.S. law from providing support for the tobacco
    sector (Reftel).  While we cannot independently confirm the
    employment information provided by the sector, a tax increase would
    likely dampen demand for cigars in the United States and threaten
    the livelihoods of many in the impoverished northern part of
    Nicaragua.  President Ortega may also seize on the tax as an example
    of "U.S. duplicity" in offering market access through CAFTA-DR only
    to cut it off after a trading partner begins to export.  End
    Comment.

    TRIVELLI

`